450. Economic Secretary, we are sorry to have
kept you waiting. You have just sent us this consultative document
on Standards for Retail Financial Products. It is quite long,
and it seems to me, as we have not read it, it is not worth asking
questions on, but if we have any questions, we would like you
to come back, please.
(Miss Johnson) No problem at all.

Mr Fallon

451. The Cruickshank Report, Minister, is nearly
a year old now. Is the banking system more competitive?
(Miss Johnson) We are in the process of actually taking
forward the Cruickshank Report. Perhaps if I could start off by
making a few opening remarks about where we are on things in general,
it might help to answer your question but also set the scene.
We commissioned the report, as you know, because we had concerns
about the levels of innovation, competition and efficiency. Following
the publication of that report, it is clear that these concerns
are justified. The Government has moved swiftly to tackle those
problems. Indeed, there were beneficial effects before the report
was even published. For example, the public pressure in the light
of the emerging conclusions from Cruickshank and the publicity
around the double charging for ATM transactions led to the withdrawal
of the double charging for ATMs, and we are now in a situation
where consumers no longer have to pay ATM charges for the vast
majority of their transactions. We sought to implement very quickly
two of the key recommendations in the report, and on the day of
publication we referred the small business banking services to
the Competition Commission, and on the day of the Budget, the
following day, the Chancellor announced we would legislate to
open up access to payment systems and overseas access charges.
We have made considerable progress since then, to come on to Mr
Fallon's question. We have established an independent review chaired
by Dr DeAnne Julius on whether consumer codes such as the Banking
Code are sufficiently delivering benefits to consumers or not,
and I am sure the Committee are aware of the concerns expressed
about the low level of compliance with the Code. Just before Christmas
we published our proposals to give the OFT robust new powers to
tackle the competition problems associated with payment systems.
I regret the short notice, but we had the option of either publishing
before the Committee, which at least gave you the chance to see
things, or after the Committee, which would have looked as if
we were trying to do something different, but today we published
a consultation document on the CAT standards and how we propose
to extend those to credit cards and basic bank accounts. I am
pleased to say in addition to all of that that the banks have
responded to the challenge by me to them to tackle financial exclusion
by introducing basic bank accounts which are accessible at post
offices. So I believe overall that we have effected a sea change
in the competitive environment for banking, and we will be delivering
real benefits to consumers, ensuring that they have innovative
services, better prices and a greater choice than ever before.

452. If there has been a sea change, why do
the Big Four still have the 70 per cent of the market that they
had a year ago?
(Miss Johnson) I think that is an indication that
the problem has to be addressed through the measures that we are
taking. We are only now putting into effect some of the things
that will change that. I think it is important to recognise that
what we are doing is making sure that there is greater transparency
in the system, that there is more competition driving things,
and that there is going to be less hassle in the future, hopefully,
for people switching accounts. All of those problems are being
addressed by the various measures I have already outlined in different
ways, and as those roll through the system, we will expect to
see that percentage come down. We think the fact that it is holding
up at that 68 or 70 per centI think it was 68 per cent
at the time that Cruickshank reported; it is now 70 per centis
an indication that there is a problem there, and that exactly
validates the purpose of having the report and tackling it in
the way that we are.

453. If it is holding up or increasing, there
has not been a sea change, has there?
(Miss Johnson) Obviously now we are in the process
of implementing these things. We have made the reference of small
business services to the Competition Commission, and they are
still looking at that and have not yet reported, so they are not
in a position to act yet, and neither are we, because that is
still being looked at in more detail. We have announced the arrangements
for PayCom with the OFT, and those arrangements will make sure
that a lot of the issues about the costs for consumers will be
addressed. In terms of the ease of switching accounts, we have
the Banking Code's review under way, and DeAnne Julius is looking
at the evidence. Indeed, I believe she has written to the Select
Committee asking for the Select Committee's comments, which I
am sure would be helpful in this process, and she will take evidence.
If we find that one of the issues is a difficulty for people in
changing accounts, we will expect to see additional competition,
and compliance with the codes will address those issues.

454. You yourself referred to innovation, but
one of Cruickshank's most damning conclusions was that "all
customers get the same slow service from the banking system."
When are customers going to see faster service?
(Miss Johnson) They will see a faster service speeding
up as from now. We already have the ATM charges to demonstrate
the effectiveness of the approach that we have been taking. There
are no ATM charges now, except for those few ATMs in convenience-type
locations. The vast majority, 90 per cent or so, of the network
does not carry any ATM charges, and where there are charges, they
are advised to the customer on the screen at the time of use so
they have the option of not using the ATM. That is evidence that
we are already effecting major changes. That was a big issue for
consumers, rightly so. We have achieved a change through this
process, and we expect to see further changes taking place as
the rest of the provision is put into place.

Mr Plaskitt

455. Can I turn to the Universal Banking Service
and ask if the Treasury is satisfied on the progress being made
so far in setting the service up?
(Miss Johnson) We have, I think, had a good response
from the banks in terms of providing basic bank accounts, as I
said earlier on, and all the main banks now provide a form of
basic bank account in response to the challenge that I issued
to them following the PAT14 financial exclusion issue. We welcome
the fact that on 20 December six of the major banks announced
that they would in principle contribute towards Universal Banking
Services. Obviously, the basis of the Universal Banking Service
is going to be the basic bank account, and we think that is the
right way forward. They are going to make their own basic bank
accounts available via the Post Office, across post office counters,
which will meet our needs for greater accessibility for banking
products, particularly for the financially excluded, but also
obviously it provides a vehicle for them to get the basic bank
accounts out to a wider range of the public, and it meets our
desire to have a Post Office-based approach to this issue. So
we feel that we have made good progress so far on this.

456. When do you expect accounts to be available
through the Post Office-based Universal Banking Service?
(Miss Johnson) The whole aim of this is that, obviously,
the changes need to be fully in place before the ACT changes in
2003-2005, which is the timetable that has been set on the DSS
and benefits side of things. A lot of the basic bank accounts
are available now. Some are available via the Post Office. We
would expect to see that accelerating fairly rapidly. We are not
looking to wait until 2003 to see that in place. That process
is already under way.

457. We understand that the banks that signed
up in December have agreed to support it for a period of time.
Do we know how long that is?
(Miss Johnson) Discussions are still going on between
the banks and the Post Office, and obviously there is an element
of commercial sensitivity and confidentiality about those discussions.
I am not aware of any particular issues about the timetable, but
I do not think I have anything else to add to what you have said
on that.

458. Do you anticipate ongoing support from
these companies, or do you see a point where their support comes
out of the system and the Universal Bank and the Post Office itself
sustains it?
(Miss Johnson) I think it would be very nice, and
ideally we will get to the position where nobody is financially
excluded, that everybody is using a range of at least basic financial
services products, including bank accounts, and where this is
not really an issue which is of moment for discussion by ourselves,
by government, by the public or the press and it becomes a non-issue
because it is universally adopted. Obviously we have some way
to go on that because we are talking about a significant proportion
of the adult population, some 8-10 per cent, who currently do
not have access to financial services in this way. It is an issue
at the moment, but one that I hope we move away from in time.

459. What do you think was the main incentive
for companies to sign up in support of this service? What is in
it for them, in your view?
(Miss Johnson) The banks have undertaken to meet the
issue of financial exclusion and to deliver wider accessibility
of basic banking products. It was in recognition of that that
they have all made the basic bank accounts available during the
course of last year. In order to make them accessible as well,
they need vehicles. They need places that these accounts are going
to be accessible to people, and clearly the Post Office, with
its very much wider network of post offices, rather than bank
branches, is an ideal place for them to get those out, and of
course, a lot of the communities that post offices are serving
are those communities we would also want to reach, those who are
less included in financial services products.